Kentucky’s Tobacco Economy

December 10, 2015

FRANKFORT – About 16 years ago, as most states were deciding how best to spend their portion of a landmark settlement reached with the major tobacco companies, Kentucky took an innovative approach that is continuing to pay substantial dividends.
Under that agreement, half of the annual payments are set aside for agriculture and the other half is split equally between early childhood development and healthcare programs.
Last month, the University of Kentucky released a study that took an in-depth look at the benefits agriculture has reaped from its portion. Between 2007 and 2014, it found, each settlement dollar generated about $2 in farm income.
In reviewing that research, which was a follow-up to similar work done eight years ago, the legislature’s Tobacco Settlement Agreement Fund Oversight Committee heard last week from a UK agricultural economist, who said that farming would likely be years behind where it is today without the programs the settlement made possible.
Overall, agriculture received nearly $200 million during the study period. Most of the money went to state and local projects and programs, while nearly $13 million went to low-cost loans used by farmers and agribusinesses. About 34,000 farmers, roughly half of whom are current or former tobacco growers, were estimated to have been helped in some way with settlement money.
The Kentucky Beef Network was one of the larger beneficiaries, and its return on investment was nearly four-to-one. Cattle farmers saw their income grow 11 percent faster than their counterparts in Tennessee and 27 percent faster than those in Arkansas.
Dairy farmers, meanwhile, were helped with incentives that helped raised 2007 baseline production by four million hundred weight, and the sheep industry has grown by 40 percent in the last four years alone. Among big-ticket items, grain farmers are being helped by a new buying and loading terminal on the Ohio River in Meade County.
As for programs funded at the county level, more than $106 million was spent between 2007 and 2014 to help farmers boost their livestock and grain operations and to improve their farms’ fields and infrastructure.
One of the best-known programs receiving money from the settlement is “Kentucky Proud,” a logo used by those whose products are grown or manufactured in the commonwealth. The researchers said that there is debate about the requirements needed to qualify for this brand and suggested that there be a rating system, to better differentiate between products made entirely here versus those that may contain ingredients from elsewhere.
A day after the legislature’s Tobacco Settlement Agreement Fund Oversight Committee met, agricultural experts at Kentucky Farm Bureau’s annual meeting gave farmers and agribusinesses their report of what farming has done this year and what can be expected in 2016.
In short, Kentucky is on the same downward trend as the rest of the country. The U.S. Dept. of Agriculture said cash receipts are 10 percent lower nationwide this year, with declining exports and growing supplies being the main drivers. Corn and soybean production, for example, reached levels this past season not seen since 2007.
Locally, UK’s agricultural economists say Kentucky’s agricultural receipts are right at $6 billion this year, which is a half-billion dollars less than in 2014 but still the third-highest total on record. For much of last decade, that figure hovered around $4 billion annually. It’s worth noting that part of the decline in farm income is due to the end last year of a separate buy-out program tobacco growers had been receiving.
In a breakdown of Kentucky’s commodity sales this year, poultry accounted for 22 percent of the total, while cattle and horses stood at 16 percent apiece. Corn and soybeans also mirrored each other with 13 percent each.
UK’s representatives predict that 2016’s agricultural sales will fall slightly. Gains in poultry, horses and hogs are expected to be off-set by declines in cattle, grains and tobacco.
As all of these figures show, there are challenges ahead for farming, and that’s before factoring in whatever the weather may bring in next year.
Even so, last month’s UK report indicates that we better equipped to handle these downturns than we were 16 years ago, when our farm economy was less diverse. The goal ahead is to make sure the next 16 years are even better.
If you have any thoughts about this, I would like to know. You can write to me at Room 366B, Capitol Annex, 702 Capitol Avenue, Frankfort, KY 40601; or you can email me at Rick.Rand@lrc.ky.gov.
To leave a message for me or for any legislator by phone, please call 800-372-7181. For those with a hearing impairment, the number is 800-896-0305.
I hope to hear from you soon.